DEL.ICIO.USUpdated: 6:15 p.m. November 10, 2008
As DHL scales back, UPS, FedEx rivalry heats up
Top two package carriers and Postal Service will scrap for DHL’s customers
The Atlanta Journal-Constitution
Monday, November 10, 2008
Minutes after DHL announced Monday it was ceding the U.S. express mail market, UPS’s sales force — more than 3,000 strong — swung into action.
1-800-PICK UPS — the call center for Sandy Springs-based UPS, the largest U.S. air and ground carrier — lit up. And the “Welcome Center for DHL customers” on UPS’s Web site started popping.
AP
DHL has spent more than $10 billion since 2003 trying to build a U.S. air and ground network and customer base.
U.S. market share for express mail and ground parcels, for the third quarter 2008
• UPS: 52 percent
• FedEx: 31.5 percent
• U.S. Postal Service: 11.7 percent
• DHL: 4.8 percent
Source: SJ Consulting Group
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“We saw quite a boost this morning in the new account area,” Alan Gershenhorn, senior vice president of worldwide sales and marketing, said Monday. “We’ve been well-prepared for this. Just now we’ve kicked our sales efforts into a higher gear.”
UPS wants “more than its fair share” of DHL’s customers, said Gershenhorn.
Customers and industry insiders have watched DHL’s network deteriorate for months. UPS’s 60,000 drivers have doubled their sales leads in the last few weeks, and direct e-mail and snail mail campaigns are under way to recruit clients, he said.
The market opportunity — about 1.1 million shipments a day — is ripe for the taking.
UPS’s near-term goal is to turn DHL’s customers toward Big Brown —and away from No. 2 FedEx, based in Memphis, or the No. 3 U.S. Postal Service. DHL had been a distant No. 4, controlling only about 5 percent of the U.S. express and ground market, according to SJ Consulting Group.
In a third-floor executive conference room at UPS headquarters on Monday, Gershenhorn and six staffers watched DHL’s top brass say at a press conference in Germany that their $10 billion, five-year experiment was over. DHL will end the bulk of its U.S. package operations on Jan. 30.
“We’re running full-page ads in the Wall Street Journal and USA Today [on Wednesday], speaking directly to the DHL customer. We’re making it easy for customers to switch over to UPS,” Gershenhorn said. “All of our folks are getting engaged.”
FedEx reacted similarly, welcoming DHL customers to its services.
The companies’ reactions show the landscape for air express carriers in the United States changed dramatically with DHL’s announcement.
Taking on the U.S. market in 2003 with the purchase of low-cost carrier Airborne was a “risky” venture given the intense competition from UPS and FedEx, said John Mullen, global CEO of DHL Express, on a conference call Monday with reporters.
It is easy to see why DHL bet on the U.S. market and why its rivals are circling.
“Close to half of our top 200 customers are based in the U.S.,” Mullen said in a statement, “and U.S. trade lanes make up close to half of our global volume, and half of our global shipments touch the U.S.”
Can’t celebrate too hard
Even with a boost from DHL customers, however, it won’t be smooth sailing for UPS and FedEx.
Both companies have suffered from the downturn in the U.S. economy, with declining demand for premium air express service in favor of more modestly priced ground service.
Another downside for UPS is that a $1 billion deal between UPS and DHL will be drastically smaller. Transportation analyst Ed Wolfe now values it at less than $100 million.
Belgium-based DHL, a subsidiary of Deutsche Post World Net, based in Bonn, Germany, was losing more than $1 billion a year on its unprofitable U.S. express mail division, DHL’s Mullen said during the call.
A deal has been in the works for UPS’s air cargo planes to fly DHL packages and letters into North America from foreign countries.
DHL was seeking to shave billions off its U.S. balance sheet by ceasing to operate its Wilmington, Ohio, air hub and sorting center, which employs about 8,000 to 9,000 workers and pilots.
UPS has the extra capacity at its air cargo and sorting hub in nearby Louisville, Ky., to handle the shipments.
The deal was opposed by DHL’s air pilot unions as well as Ohio politicians. Congress held several hearings and the presidential candidates said they were concerned.
But federal regulators felt otherwise, and have indicated they won’t interfere with the transaction. UPS and DHL have likened it to contracts UPS and FedEx have to fly packages for the postal service.
But the unfinished, $1 billion deal between DHL and UPS could now be worth about one-tenth the revenue, according to analyst Wolfe.
“It’s not yet clear what will happen,” he wrote in a note to clients. “But it won’t be as previously suggested of around $1 billion in annual revenue for 10 years.”
DHL says it still hopes to ink the deal by the end of the year.
For the rest of the business, Wolfe believes that UPS and FedEx will split about 80 percent of DHL’s domestic air business, 70 percent of its ground business, and 5 percent of its import/export revenue as large customers seek to have “one-stop” shopping.
UPS spokesman Norman Black noted that DHL still is a fierce competitor overseas.
“DHL is not going anywhere. They are still No. 1 outside the United States.”
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